![]() While overall inflation has declined, the costs of some services - from auto insurance and car repairs to veterinary services and hair salons - are still climbing faster than they were before the pandemic. Both trends could keep inflation and the Fed’s interest rates high enough and long enough to weaken household and corporate spending and the economy as a whole. Oil prices have surged more than 12 percent in just the past month.Īnd the economy is still expanding at a solid pace as Americans, buoyed by steady job growth and pay raises, have kept spending. Though clear progress on inflation has been achieved, gas prices have lurched higher again, reaching a national average of $3.88 a gallon as of Tuesday. In generating sharply higher interest rates throughout the economy, the Fed has sought to slow borrowing - for houses, cars, home renovations, business investment and the like - to help ease spending, moderate the pace of growth and curb inflation. Previously, they had focused more on the risks of not doing enough to slow inflation. The approach to rate increases the Fed is now taking reflects an awareness among the officials that the risks to the economy of raising rates too high is growing. ![]() Core inflation, under the Fed’s preferred measure, is now 4.2 percent. READ MORE: Yellen details tighter scrutiny of investment plans of foreign-owned companies in the U.S.Ĭore inflation, which excludes volatile food and energy prices and is considered a good predictor of future trends, is now expected to fall to 3.7 percent by year’s end, better than the 3.9 percent forecast in June. They now foresee growth reaching 2.1 percent this year, up from a 1 percent forecast in June, and 1.5 percent next year, up from their previous 1.1 percent forecast. In their new quarterly projections, the policymakers estimate that the economy will grow faster this year and next year than they had previously envisioned. The job market and the economy have remained resilient, confounding expectations that the Fed’s series of hikes would cause widespread layoffs and a recession. The policymakers’ inclination to keep rates high for an extended period suggests that they remain concerned that inflation might not be falling fast enough toward their 2 percent target. They expect the rate to still be 5.1 percent at the end of 2024 - higher than it was from the 2008-2009 Great Recession until May of this year. The Fed’s moves underscore that even while the policymakers approach a peak in their benchmark rate, they intend to keep it at or near its high for a prolonged period. They expect to cut interest rates just twice next year, fewer than the four rate cuts they had predicted in June. economy toward a tricky “soft landing” of cooling inflation without triggering a deep recession.īesides forecasting another hike by year’s end, Fed officials now envision keeping rates high deep into 2024. In fine-tuning its rate policies, the central bank is trying to guide the U.S. The Fed’s hikes have significantly raised the costs of consumer and business loans. The Fed’s latest decision left its benchmark rate at about 5.4 percent, the result of 11 rate hikes it unleashed beginning in March 2022. ![]() Yet it’s still well above the Fed’s 2 percent target, and its policymakers made clear Wednesday that they aren’t close to declaring victory over the worst bout of inflation in 40 years. ![]() Watch the announcement in the player above.Ĭonsumer inflation has dropped from a year-over-year peak of 9.1 percent in June 2022 to 3.7 percent. But Fed officials also signaled that they expect to raise rates once more this year. ![]() WASHINGTON (AP) - The Federal Reserve left its key interest rate unchanged Wednesday for the second time in its past three meetings, a sign that it’s moderating its fight against inflation as price pressures have eased. ![]()
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